Top guns of India Inc fail to spend 2% profit on social responsibility

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State-owned Oil and Natural Gas Corporation (ONGC), IT giants Tata Consultancy Services (TCS) and Infosys, lenders ICICI Bank, Axis Bank, HDFC Bank and telecom major Bharti Airtel are among top companies that have not spent 2% of their profits on social welfare activities. As per the provisions (Section 135) of the Companies Act, all the firms having net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more have to spend 2% of their profit on Corporate Social Responsibility (CSR) every fiscal.

Among top-100 companies which have spent less than half of the funds earmarked for CSR during financial year (FY) 2015-16 are Bharti Airtel (22%), Idea (33%), Hindustan Zinc (37%), BHEL (41.8%) and Cairn India (48%), as per the documents seen by DNA Money. The zero spenders during this period include Essar Steel, Alok Industries, Micromax and DLF Commercial Developers. About Rs 13,828 crore was spent by over 19,000 companies during FY16. In the subsequent year, only Rs 4,719 crore was spent by 6,286 companies. Over 9,200 eligible companies did not spend a single penny on CSR during FY16 as compared to 346 firms in FY17.

The government has "issued scrutiny letters to about top 1,000 companies for non-compliance of the CSR law during FY16. Next step is to send show-cause notices before court cases are filed against violators," a senior official from the Ministry of Corporate Affairs (MCA) told DNA Money.

This is part of the first-ever strict compliance of the CSR law, four years after it was implemented in April 2014. There are 3,380 companies which spent less than the prescribed limit during 2015-16, while 1,633 firms spent more than the prescribed limit.

"The government will soon start taking action against the CSR violations committed in FY17 also," sources said. So far, the companies have provided financial statement and CSR figures till 2016-17 only.

During 2016-17, ICICI Bank, HDFC, Axis Bank, YES Bank, IndusInd Bank, Kotak Mahindra Bank and Volkswagen were among some 3,700 companies which failed to spend entire 2% of their profits on social welfare activities, as per government records.

"If the companies are found to be in violation of the provisions of the CSR law, they will have to face court prosecutions," said a senior government official, adding that the ministry has decided to make the compliance of the law strict, as a large number of companies were found to have not spent enough on social welfare as expected.

So far, "the soft approach adopted by the government to encourage companies to carry out social welfare activities allowed the companies to get away with even less CSR expenditure. In the first year (2014-15) of implementation of CSR law, the government approved action against only those companies which failed to disclose in their annual report reasons for not spending on CSR. But the ministry plans to now refer all the cases of non-compliance to the court and let it decide on it," said another official.

However, sources point out that the government may seek legal opinion before filing prosecutions as one of the Frequently Asked Questions (FAQs) issued by it earlier said, "Board can decide whether any unspent amount from out of the minimum required CSR expenditure is to be carried forward to the next year."

In the cases of CSR violations during 2015-18, the government is also mulling asking companies to deposit the unspent money in the government fund, sources said. However, for future purpose, merely giving an explanation for not undertaking expenditure on CSR would no longer qualify as compliance of the law, sources added. The companies can spend CSR funds in about 10 areas that include poverty eradication, preventive healthcare, sanitation, safe drinking water, education, gender equality, environmental sustainability and protection of national heritage.

On contacted, an HDFC: spokesperson said, "Due to HDFC’s shareholding pattern, the company was classified as a ‘foreign source’ under the Foreign Contribution Regulation Act (FCRA). Consequently, any contribution made by the company towards a grant or donation to a non-profit organisation was considered a foreign contribution. This restricted HDFC from providing grants to several NGO partners in FY2015-16."

Airtel said, "Bharti Airtel has been scaling up CSR activities in areas prescribed in the CSR policy and spends have increased year on year. The company continues to undertake various CSR initiatives and play its part as a responsible corporate."

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CSR VISION is India’s ( probably world’s ) first monthly magazine in print devoted to CSR and Sustainable Development for bringing together all stakeholders of SUSTAINABLE DEVELOPMENT at a global and local levels and act as a platform for promoting strategic CSR and sustainable development practices through dissemination of information and knowledge.